Is a E M D asked for when the other party doesn 't believe the buyer is serious? Also if I refuse to put down a earnest money deposit do I risk ending negotiations for the property?
A buyer should always ask his or her own agent questions like this. If you don't trust your agent to give you the right answer you probably have the wrong agent. When you question your agent's judgement you can always ask for an explanation from the agent's broker. That said, what follows is not a specific answer to your specific situation, but some general advice about EMD's.
EMD stands for earnest money deposit. Earnest money deposit literally means money that you've deposited to show you are earnest. Nearly every real estate offer these days will include some amount of earnest money to show that the buyer is serious. Offers without any earnest money generally mean that the buyer lacks the capacity to actually make the purchase or that the buyer doesn't want to risk any money in the transaction.
Nobody likes risk. So what is the risk of putting up an earnest money deposit. An EMD check is in practice often not cashed if the offer is not accepted. An EMD check is usually only cashed when the buyer and seller agree to terms and price. Once that check is cashed it is deposited into an escrow account. That means that the money is NOT in the broker's bank account. That money is in a separate account that does not comingle with the brokerage's funds. Once the money is in that account the money generally only comes out one of four ways:
When the transaction closes. When the sale happens the money is applied to the buyer's expenses and/or down payment.
When a judge gives the money to someone. If the sale doesn't happen and parties cannot agree who to give the money to, a judge will decide who deserves the money.
When both parties agree to distribute the money. Both parties must agree who to give how much money to.
When a sale is canceled. There are many reasons a sale might not happen. Sometimes the buyer can't get financing. Sometimes the home won't appraise. Sometimes buyers and sellers mutually agree to cancel the sale. When that happens the money is returned to the buyer.
So where is the risk? If the buyer acts fraudulently or negligently the EMD is put at risk. That means that if the buyer lies or attempts to defraud the seller then the sale won't happen and the money might be forfeit to the seller or the brokerages involved. This doesn't mean the seller can just take your money if he thinks you've lied. The seller can't take that money. But a judge can take the money and give it to the seller. And the buyer and seller can negotiate to give some or all of the money to the seller.
The Purpose of Earnest Money
When a seller accepts a buyer's offer, the seller takes some risk. The seller takes some risk because when the property is under contract, he cannot sell the property to other buyers who might be interested. In other words, if the seller agrees to a price with some joker who is just playing around and who won't buy the house, the seller might miss out on someone who really wants to buy the house. So sellers want to know that if they are risking something then the buyer is risking something.
How much the buyer is willing to risk is usually a good indication of how solid the deal is. We usually advise our buyers to put down 1% of the purchase price as escrow money, but some buyers put down more . . . sometimes much more. The bare minimum you'll see in most contracts in Northern Virginia is $500 to $1000. Offers with those minimal amounts are rarely accepted, or get a counter offer asking for more earnest money. Very rarely the lower EMD is accepted when the buyer is a veteran using a VA loan, because a VA loan might be more then 100% of the purchase price.
A buyer who puts up a larger EMD is saying to the seller, "I am rock solid. If you accept this deal, you will sell your house." It sort of like when you buy a car and you pull out the cash and show it to the seller. Then the seller knows you are serious. A buyer who puts up a smaller EMD is saying to the seller, "I don't have that much money on hand. I don't want to risk much money because I might not be able to hold up my end of the bargain."
How to get your EMD back.
For more information or to set up an appointment call Nesbitt Realty at (703)765-0300.
When you've finally picked out the condo, house or townhouse that interests you, it's time to write the offer. Together with proof of Earnest Money, and lender approval, I'll present the offer to the selling agent.
Presenting an offer is a little bit more involved than simply faxing paperwork to the listing agent and then waiting for a response. It is important to get the offer over as quickly as possible. Bargains (in any market) don't last long. Then I call the listing agent to let them know the offer has been sent.
When appropriate, I follow up in the conversation by sharing appropriate details with the listing agent. For example:
I can give the selling agent some personal background about my clients and what they are looking for. I can explain why they are qualified to buy or how many homes my client has looked at. In some cases, it's appropriate to tell seller what the buyers appreciate about the home.
I sometimes provide the sellers with a comparative market analysis to show the sellers the rationale behind the offer we are making.
Of course, it's my job to explain and review all of the major details of the offer;
contingent or non-contingent,
inspections,
date of closing,etc.
and of course, price.
When necessary I discuss a brief timeline outlining the expected milestones between the offer and settlement.
What styles of homes do buyers prefer in {Location_Name}?
A recent Realtor.com® survey of more than 1,000 home shoppers found that architectural preferences differ by generations. Older buyers prefer ranch-style homes while millennials prefer contemporary and colonial homes, with only six percent of millennials favoring ranch homes.
For more information or to set up an appointment call Julie at (703)765-0300.
When you've picked out the house, townhouse or condo you want to make your own, it's time to write the offer. An offer is a written description of the terms under which you the buyer would purchase the subject property. If the seller accepts your terms the next step would be to proceed to closing and thus full ownership of the property. Although most Realtors in Northern Virginia use the standard Northern Virginia Association of Realtors contract there are many possible contingencies, addenda and options that will alter the offer to make it specific to your situation.
One of the most common contingencies added to the offer is the "financing contingency". This contingency specifies that if the buyer cannot get financing then the deal is off and the earnest money is returned to the buyer without penalty.
Another matter that must be addressed in the offer is the down payment. One way that the down payment differs from the earnest money in that the down payment is paid at closing rather than at the time of the offer. The seller wants to know the buyer's down payment amount because it provides further evidence of the buyer's qualifications to secure a mortgage.
The offer also describes the interest rate and some terms of the proposed loan. The rates and terms described in the offer are not an offer of credit from a lending institution and do not reflect the loan that the borrower will receive. Rather, the rates and terms are describe to provide a safeguard against any dramatic change in interest rates between when the offer is made and when the loan is closed. In other words if the rates double but the buyer is still approved for financing the buyer could cancel the offer because the terms exceed what he can tolerate financially.
Every purchase will have closing costs. Both buyers and sellers have expenses at closing. Buyers, especially first time buyers, are usually scraping for down payment and closing costs. The seller cannot help with down payment, but the seller can subsidize the buyer's closing costs. If so negotiated the seller can pay all or a portion of the buyer's taxes, origination fees or title insurance. This money comes directly from the seller's pocket so if buyers who need assistance can expect to pay a little higher price than those who do not need a subsidy.
Although the seller cannot help with down payment, the seller can offer some or all of the financing. The terms of the offer will describe the loan that the buyer expects to receive from the seller.
When we make the offer I can help advise you on what terms and conditions will best suit your unique circumstances and what terms are mostly likely to be acceptable to the seller.
What follows is an email I recently received and my response.
Good evening Mr. Nesbitt,
I placed an offer on a condo in December 30, 2008. I signed the contract on that day and gave a cashier's check to the seller's real estate agent in the amount of $750. I waited for the signed contract from the seller to come back to me, but a lot of time lapsed and a signed contract from the seller never came. I decided to pull out. On January 23, my agent sent in a statement, letting the seller know that I was pulling out and that I wanted my earnest money back. Several weeks later, the real estate agent said I had to sign a termination form to receive my earnest money. That was sent in on February 10, 2009. I still have not received my earnest money back. The seller's agent said they are waiting on the assets manager to release the funds.
I have decided to take the agency to small claims court. I do not feel that best interest is being considered. Please give me some advice. Thanks.
Firstly and mostly, let me start off by saying that real estate agents and brokers are not attorneys. I do not practice law and it is not my business to give you legal advice of any kind. However, I do have some experience in these type of matters and will comment as best as I can.
Based upon your letter, I am assuming that you made an offer on a piece of property and you paid $750 in earnest money to the selling agent. The offer was not accepted but the selling agent has not promptly released your funds.
I would recommend that you call the selling broker---not the selling agent. Brokers and the Commonwealth of Virginia take very serious the trust given us as escrow agents. The broker (not the agent) must release the money. Try to speak directly with the broker and explain what you have gone through. I am certain that the selling broker will act swiftly to return you money.
If the broker does not respond with in a short but reasonable amount of time, the next level to contact would be the Northern Virginia Association of Realtors. If that doesn't give satisfaction, the Commonwealth of Virginia's DPOR should be your next contact. If you are owed money, things will proceed quickly at this point.
But you probably want to consult an attorney to verify that my advice will suit your specific case.
Will Nesbitt